Going Once, Going Twice, Gone! eBay is shooting itself in the foot

The very popular San Jose-based online auction company eBay recently touched off a Silicon Valley range war by blocking online inquires from AuctionWatch.com, a much smaller rival based in San Bruno.

This isn’t just a fight between two companies — although it certainly is that.

eBay’s move also assaults a critical part of the Internet’s evolving business culture. If eBay’s gambit succeeds, the Internet could be on its way to becoming a much less useful place. Finding what you’re looking for on the web will get harder and harder just when it should be getting easier and easier.

eBay is by far the world’s largest host of Internet auctions. The company generated nearly $60 million in revenue during the most recent quarter by helping its customers buy and sell every form of merchandise and collectible imaginable.

Content aggregator AuctionWatch.com, in contrast, is a still privately held firm with an entirely different central mission. The firm’s “universal search” service lets users scour an index of items up for bid at several hundred auction sites. Once users find what they’re looking for, they can click over to the site where the auction is being held. AuctionWatch estimates it has passed on upwards of half a million click-thrus to sites such as eBay.

Now, you might figure you’d want to thank someone who is sending you hundreds of thousands of paying customers. But that’s not what the normally astute folks at eBay are doing.

Instead, they’re trying to shakedown their online benefactor.

At first, eBay’s representatives said AuctionWatch’s repeated requests for information slowed down eBay’s servers, violated the company’s intellectual property rights, and frequently left consumers with inaccurate or outdated information.

eBay was, however, apparently willing to overlook such transgressions. That is, if AuctionWatch would agree to pony up an undisclosed annual licensing fee to gain access to listings on its site, information that is freely shared with everyone else on the planet.

The companies had a few sit-down talks. Eventually, AuctionWatch got up and left.

And thus, the battle lines have been drawn.

The real irony here, though, is that eBay may be the biggest victim of its own misguided tactics.

eBay stands to lose far more than mere online referrals. The move is also jeopardizing the firm’s most valuable asset: its image as a leader of the online revolution. After all, eBay’s stock price didn’t go through the roof just because it’s website is a good place to buy Beanie Babies.

Pulling up the digital drawbridge makes eBay look like a frightened company under siege. In one undeft move, eBay’s executives succeeded in turning the company’s winning hand, the number of referrals pulled in to the site, into a public relations disaster that has only increased the public appetite for AuctionWatch’s comparative service.

What’s more, eBay also appears to be on very shaky legal ground.

The heart of the issue revolves around what lawyers call the “fair use” doctrine. Under the fair use doctrine, businesses and individuals have a right to make limited uses of information or statements produced by others.

Without such fair use protection, there would be no movie critics, restaurant reviewers, journalists or, for that matter, a free press. In a world ruled by eBay’s current sensibilities, a restaurant owner could, for example, sue a critic for listing items on its menu, claiming such a disclosure constituted a violation of the eatery’s intellectual property. That’s the slippery slope eBay is greasing up.

One traditional test of the “fair use” doctrine has been to determine if someone reusing intellectual property is, in whatever way, depriving the owner of the property of income that’s more rightfully theirs. Simply put, what you can’t do is to sell something that belongs to someone else.

Clearly, though, that’s not what AuctionWatch was doing.

The more people AuctionWatch pulled into its site, the more money eBay made, not the opposite. It should matter little that AuctionWatch might be able to scoop up a few measly ad dollars along the way in exchange for providing consumers with a useful service.

If eBay really feels threatened by what AuctionWatch is doing the company has sufficient resources to develop a competing universal search service. It’s a pro-consumer strategy that would, in the end, serve eBay’s interests far better.

Similar practices have long represented the very best in retailing. Nordstrom, for example, is famous for helping customers find what they’re looking for even if the firm’s stores don’t stock the item. Many shoppers who’ve encountered such treatment say they always visit Nordstrom first as a result.

Given its more sizable resources, eBay could easily win the current battle. AuctionWatch might even be forced out of business. It has to be hard to run a content aggregation service without access to 70 percent of the relevant content.

In the fullness of time, though, eBay is sure to lose the war.

The Internet’s business culture won’t long tolerate a market leader that cuts itself off from the rest of the online community. Over time, buyers and sellers will no doubt flock to auction sites that offer the most comprehensive information on all available products. If that’s not eBay then, eventually, it will be some other company. eBay came out of nowhere, a place to which it could just as easily, and even more quickly, return. If the Internet has proven anything so far, it’s that information embargoes don’t work for long.

What eBay’s executives don’t seem to realize is the barriers the company erects today to keep others out could one day turn out to be the walls of its own prison.

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<p>My published work since 1985 has focused mostly on public policy, technology, science, education and business. I’ve written more than 600 articles for a variety of magazines, journals and newspapers on these often interrelated subjects. The topics I have covered include analysis of progressive approaches to higher education, entrepreneurial trends, e-learning strategies, business management, open source software, alternative energy research and development, voting technologies, streaming media platforms, online electioneering, biotech research, patent and tax law reform, federal nanotechnology policies and tech stocks.</p>